The retail property market in Southern California showed continued tightening in the third quarter of 2026. This was evident from positive net absorption and falling vacancy rates across much of the region, according to a new report from Colliers. Retail tenants absorbed approximately 757,600 square feet of space in Los Angeles and Orange Counties, as well as the Inland Empire, during this quarter. The overall vacancy rate decreased by 12 basis points compared to the second quarter, reaching 6.15 percent, while leasing volume amounted to 2.5 million square feet.
Average asking rents rose by 1 cent from the previous quarter to $2.40 per square foot per month (triple-net basis), which was 1.33 percent higher than the previous year's value. The Inland Empire led the region with 527,000 square feet of positive net absorption, increasing the cumulative year-to-date total to over 1 million square feet. This market share of almost 70 percent of the regional absorption in the third quarter was achieved despite a quarterly decrease in leasing activity of 34 percent to 767,000 square feet. The vacancy rate in the Inland Empire decreased by 30 basis points to 6.9 percent, while asking rents rose to $1.88 per square foot.
Regional Developments and Property Type Performance
Community and neighbourhood centres were the driving force behind demand, recording approximately 276,000 square feet of positive absorption and 476,000 square feet of leasing activity. Orange County also showed a strong quarter with 180,000 square feet of positive absorption and 444,000 square feet of leasing activity. The vacancy rate there fell by 25 basis points to a five-year low of 3.55 percent, while average asking rents increased by 3 percent quarter-on-quarter to $2.65 per square foot.
Power centres in Orange County contributed approximately 143,000 square feet to absorption, helping to offset losses in lifestyle and theme festival centres, which shed 118,000 square feet of space. In contrast, Los Angeles County showed more moderate strength. Net absorption amounted to only 50,000 square feet, a 77 percent decrease from the previous quarter, although leasing activity remained relatively strong at 1.3 million square feet. The county's vacancy rate remained at 6.67 percent, while average asking rents held steady at $2.62 per square foot per month.
Construction Activity and Market Dynamics
Single-tenant retail buildings accounted for 40 percent of the leasing volume but also experienced negative absorption of approximately 135,000 square feet. Across Greater Los Angeles, community and neighbourhood centres remained the best-performing property type, absorbing 519,000 square feet during the quarter. These centres represent almost 249 million square feet, which is approximately 40 percent of the region's total retail stock of 622 million square feet.
Construction activity was limited relative to the existing stock. Developers completed approximately 219,000 square feet during the quarter, while almost 1.7 million square feet were under construction. The Inland Empire had the largest share of the development pipeline with approximately 733,000 square feet, followed by Los Angeles County with 718,000 square feet and Orange County with 240,000 square feet.
